Resources, insurers ‘will help us avoid recession’

EARNINGS growth will prove tough for listed companies this year, but opportunities exist for some firms to post doubledigit growth, particularly in industries less exposed to inflationary pressures.

That’s the view of Ausbil Investment Management’s executive chairman Paul Xiradis, who helps manage about $16bn across Australian and global shares.

Ausbil expects Australia will dodge a recession and believes the economy will outperform other advanced markets that may suffer more severe downturns.

Mr Xiradis labelled operating conditions in Australia as “still strong”, with many listed companies having robust balance sheets and low levels of gearing.

“We see some companies still capable of delivering double-digit earnings growth, even if consensus is only expecting mid single-digit EPS (earnings per share) growth for the financial year 2023 (ASX 200) as of mid-December,” he said.

“We think earnings growth will be hard to come by in 2023, but there will be some clear opportunities. Given the inflationary environment we’re in, resource companies generally, general insurers and select diversified financials are expected to deliver positive earnings growth again in FY23, some delivering upward earnings revisions yet to be recognised in the consensus outlook.

“Quality leaders across the market, particularly those with relatively inelastic demand and the capacity to pass on inflationary rate costs, are also expected to deliver superior growth.”

That view aligns with a Morningstar analyst report last month that said Australia had a “high capacity to absorb” economic and other shocks that may confront it in 2023.

Last year proved a difficult sharemarket environment for investors. The ASX 200 share

index fell 5.45 per cent as returns were hit by aggressive monetary tightening to curb rampant price rises.

Mr Xiradis said while Ausbil expected earnings growth in 2023 to be under the past two years, there were companies whose earnings were immune to cyclical forces and those with upside “yet to be appreciated” by research analysts’ consensus estimates.

“Opportunities become more relevant to us if earnings or positive revisions are better than what market consensus is expecting,” he said.

“In other words, even with lower valuations across the market … we are still seeing superior earnings growth in a range of areas for FY23.

“Australian resource companies are also benefiting from strong demand for Australian commodities, from iron ore to lithium, base metals, rare earths, the energy complex, and even in soft commodities.”